Insolvency Proceedings Initiated Against A Personal Guarantor Under IBC Abate Upon The Death Of The Guarantor: NCLT
The National Company Law Tribunal (NCLT), New Delhi, Bench VI, comprising Shri Mahendra Khandelwal (Member, Judicial) and Shri Rahul Bhatnagar (Member, Technical), has held that insolvency proceedings initiated against a personal guarantor under the IBC abate upon the death of the guarantor and that legal representatives cannot be substituted in such cases.
Brief Facts:
M/s Apogee Enterprises Pvt. Ltd. (the Applicant) filed C.P. (I.B.) No. 514 of 2020 under Section 95 of the Insolvency and Bankruptcy Code (IBC), seeking to initiate insolvency proceedings against the personal guarantor, Shri Anil Nanda (the Respondent), who passed away during the pendency of the case. Through I.A. 1362/2024, the Applicant sought the substitution of the legal heirs of the deceased personal guarantor in the insolvency proceedings.
Issue:
Whether insolvency proceedings under Part III of the IBC abate upon the death of a personal guarantor?
Arguments:
Applicant's Arguments:
The applicant relied on Sections 123(5) and 169 of the IBC, Section 17 of the Provincial Insolvency Act, 1920, and the judgment of the Allahabad High Court in Molhar Singh vs. Raghunath [1972 SCC OnLine All 42] to argue that the insolvency proceedings should continue against the legal heirs of the deceased guarantor.
Respondent's Arguments:
The Respondent contended that insolvency proceedings under Section 95 of the IBC cannot continue against the legal heirs as there is no statutory provision allowing such substitution.
Observations by the NCLT:
The Hon'ble Tribunal observed that NCLT has previously considered whether such proceedings abate upon the death of the guarantor. The NCLT cited the judgments of Alchemist Asset Reconstruction Company vs. Deepak Puri (Company Petition No. IB 438 (PB) of 2021), which established that insolvency proceedings abate upon the death of a personal guarantor, as the IBC does not contemplate the continuation of proceedings against legal representatives. Similarly, the Kolkata Bench of the NCLT in Bank of Baroda vs. Ms. Divya Jalan (C.P. (IB) No. 363/KB/2021) has held that there is no provision allowing legal heirs to step into the shoes of the deceased guarantor.
The Tribunal further observed that in Bank of Maharashtra vs. Ashok Kumar Bansal (CP (IB) No. 300/ND/2022), the NCLT Bench VI also dismissed a Section 95 petition due to the death of the personal guarantor. It was also held that the definition of "personal guarantor" under Section 5(22) of the IBC applies to individuals, not their legal representatives.
The Tribunal also referred to the decision of the Supreme Court in Vinayak Purushottam Dube (Deceased) Through LRs vs. Jayashree Padamkar Bhat and Others [2024 SCC Online SC 212], which held that the estate of a deceased personal guarantor cannot be directed to discharge contractual obligations.
The Tribunal noted that Applicant's reliance on Sections 123 and 169 of the IBC is misplaced, as no relevant orders (with respect to Bankruptcy) have been passed under these provisions. The Tribunal also held that the judgment in Molhar Singh vs. Raghunath (in respect of the Provincial Insolvency Act, 1920) would not be applicable to the present case.
The Tribunal dismissed I.A. 1362/2024, holding that insolvency proceedings under Section 95 of the IBC cannot continue against the legal heirs of the deceased personal guarantor. Consequently, C.P. (I.B.) No. 514 of 2020 was closed, and all other pending applications were dismissed as infructuous.
Case Title: M/s Apogee Enterprises Pvt. Ltd. (formerly M/s Apogee Manufacturing Pvt. Ltd.) v. Late Shri Anil Nanda
Case Number: I.A. 1362/2024, I.A. 2082/2022, and I.A. 2634/2023 in C.P. (I.B) No. 514 of 2020
Counsel for the Applicant: Ms. Anandana H. Wadhwa, Mr. Keshav Gulati and Mr. Shashwat Awasthi, Advocates
Counsel for the Respondent/ Personal Guarantor: Adv. Arjun Syal.
Date of Order: September 3, 2024